Unfair Competition

A business that successfully protects its creative works from theft or infringement may still be harmed by FALSE ADVERTISING. Advertising need not be entirely false to be actionable under the law of unfair competition, so long as it is sufficiently inaccurate to mislead or deceive consumers in a manner that inflicts injury on a competitor. In general, businesses are prohibited from placing ads that either unfairly disparage the goods or services of a competitor or unfairly inflate the value of their own goods and services. False advertising deprives consumers of the opportunity to make intelligent comparisons between rival products. It also drives up costs for consumers who must spend additional resources in examining and sampling products.

Both federal and state laws regulate deceptive advertising. The Lanham Trademark Act regulates false advertising at the federal level. Many states have adopted the Uniform Deceptive Trade Practices Act, which prohibits three specific types of representations: (1) false representations that goods or services have certain characteristics, ingredients, uses, benefits, or quantities; (2) false representations that goods or services are new or original; and (3) false representations that goods or services are of a particular grade, standard, or quality. Advertisements that are only partially accurate may give rise to liability if they are likely to confuse prospective consumers. Ambiguous representations may require clarification to prevent the imposition of liability. For example, a business that accuses a competitor of being "untrustworthy" may be required to clarify that description with additional information if consumer confusion is likely to result.

Trade DEFAMATION is a close relative of false advertising. The law of false advertising regulates inaccurate representations that tend to mislead or deceive the public. The law of trade defamation regulates communications that tend to lower the reputation of a business in the eyes of the community. Trade defamation is divided into two categories: LIBEL AND SLANDER.

Trade libel generally refers to written communications that tend to bring a business into disrepute, whereas trade slander refers to defamatory oral communications. Before a business may be held liable under either category of trade defamation, the FIRST AMENDMENT requires proof that a defamatory statement was published with "actual malice," which the Supreme Court defines as any representation that is made with knowledge of its falsity or in reckless disregard of its truth (NEW YORK TIMES V. SULLIVAN, 376 U.S. 254, 84 S. Ct. 710, 11 L. Ed. 2d 686 [1964]). The actual malice standard places some burden on businesses to verify, prior to publication, the veracity of any attacks they level against competitors in print or electronic media.

It is also considered tortious for a business to use the name or likeness of a famous individual for commercial advantage. All individuals are vested with an exclusive property right in their identity. No person, business, or other entity may appropriate an individual's name or likeness without permission. Despite the existence of this common-law TORT, businesses occasionally associate their products with popular celebrities without first obtaining consent. A business that falsely suggests that a celebrity has sponsored or endorsed one of its products will be held liable for money damages equal to the economic gain derived from the wrongful appropriation of the celebrity's likeness.